Singaporeans love to buy and sell properties and cars, and the secondary markets have been vibrant for these two big-ticket items. To source for the best deals, Singaporeans can conveniently log on to online websites like iProperty and SG Car Mart. But how about insurance policies? In US and UK, the secondary markets for traded life and endowment insurances are pretty robust. However, in Singapore, the market for traded life and endowment policies is still pretty nascent.
Traded life insurances exist because the existing policy holder decides to liquidate his life or endowment policies due to financial problems or when the insured person experiences a decline in life expectancy and hope to cash in on his insurance.
Usually the cash value would be low if the policy holder surrender the policy to the insurer, so a better option would be to sell to another individual at a higher price as offered by the insurer. Throughout the transaction, no new policy is created and only the existing policy bought by the original policy holder is used.
An important thing to note is that if you purchased a traded life policy or traded endowment policy, you are required to pay the premiums until the policy matures or the person whose life is insured dies. Probably because of this, traded life policies didn’t really take off in Singapore due to moral issues.
On whether the service providers of resale endowment policies need to be regulated by Monetary Authority of Singapore (MAS), I wrote to them a few months ago and this is what they replied:
We will like to inform that there are at present no MAS administered regulations in place to govern the sale, purchase and distribution of traded endowment policies (“TEP”) and traded life policies (“TLP”). This means that any individual or company involved in buying or distributing these policies is not regulated or licensed by MAS. The only exception to this is if a Collective Investment Scheme (“CIS”), a fund or a corporate entity is already regulated under the Securities and Futures Act (“SFA”), and TLPs and TEPs form the underlying assets of the CIS, fund or corporate entity. In such cases, the CIS, the fund or the corporate entity would be regulated by MAS under the SFA.
The implication of the above statements is that the investors cannot rely on laws administered by MAS to take actions against the intermediary or person who sold them the insurance policies if there is any problem during the process. In this regard, MAS strongly encourages investors who purchase investment products to deal only with entities that are regulated by MAS. However, investors can seek recourse under the Consumer Protection (Fair Trading) Act (“CPFTA”).
In conclusion, before you purchase a traded life or endowment policies, read through the fine print carefully and understand how these products work. Don’t just focus on the returns from the policies, instead ask yourself whether the risks involve justified your capital layout.
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SG Wealth Builder